Why are Investors in China so Eager to Buy US Homes?

A whole industry has sprung up on both sides of the Pacific to dodge the rules on both sides of the Pacific.

Today, the Federal Reserve, in its function as banking regulator, wagged its finger at Industrial and Commercial Bank of China (ICBC) for insufficient procedures to detect illicit money transfers and other prohibited transactions and gave the bank 60 days to put together new anti-money laundering procedures.

ICBC, the largest bank in the world and one of the Big Four state-controlled Chinese banks, has a number of operations in the US, including two in San Francisco, one in Oakland, one in Torrance, Southern California, one in Flushing, NY, and two in New York City, including one on the 20th floor of Trump Tower.

The Fed started hounding the big Chinese banks on money-laundering procedures in the US in July 2015, with its first known enforcement action of that sort, when it gave China Construction Bank 60 days to produce plans that would curtail money laundering and suspicious transactions.

The Chinese government too has been cracking down on money flows as part of its capital controls. For individuals, these rules were tightened effective January 1, 2017. The punishment for illegal outflows was strengthened and scrutiny was increased. The individual annual maximum of $50,000 remained in place. If individuals want to obtain foreign currency from their bank, they have to fill out an application and disclose what they want to do with it. This application would then scrutinized by State Administration of Foreign Exchange.

With only mitigated effect when it comes to Chinese individuals trying to get their money out of harm’s way and plowing it into foreign homes.

Chinese individuals spent 25% less on homes overseas in 2017, compared to 2016, according to one of China’s largest international property portals, Juwai.com, cited by the Financial Times. But that still came to $40 billion, among the three largest annual amounts ever.

And $50,000 doesn’t buy a home anywhere in the coastal areas of the US, where Chinese buyers like to buy. And even in cheaper urban areas, $50,000 isn’t enough to buy a home.

Yet every major real-estate brokerage in the US markets its American homes aggressively to buyers in China, on Chinese-language websites. This includes, as of last April, Warren Buffett’s Berkshire Hathaway HomeServices, a subsidiary of HomeServices – the second largest residential brokerage in the US – when it announced a marketing agreement with Juwai.com “to syndicate all of its franchisees’ residential listings.”

So a whole industry has sprung up on both sides of the Pacific to get around the rules on both sides of the Pacific.

“Buyers are more interested than ever, but some are taking longer to complete their purchases,” Jay Xiao, general manager of the East-West Property brokerage in Shanghai, told the Financial Times. The brokerage specializes in American properties. Ms. Xiao has worked with 1,000 buyers.

It used to take three to six months for a Chinese buyer to buy a US home, from a first viewing to completing the deal. In 2017, about quarter of the deals were delayed, and on average it took over six months to complete a deal.

“It’s more annoying to move money out, but the vast majority feel it’s worth it to secure their kids’ health and education,” Xiao told the FT:

The country’s elite worry about pollution giving their children asthma, a stiff education system that their youngsters might not thrive in, and losing their rank within China’s ever-shifting social hierarchy. Emigrating, or being educated abroad, gives children a boost in status as well as access to societies seen as more stable.

Unlike the salaried middle class, the upper class mostly came by their wealth through one-off events, Ms. Xiao says – a business deal, an initial public offering, or buying a house in the 1990s at the start of the property boom. “They’re worried that they can’t repeat it,” says Ms. Xiao. “Nobody feels secure.”

Then there’s another problem – and opportunity.

“Chinese investors have few places to put their money,” explained Henry Zhou, founder of Henry Group, which helps people invest and emigrate overseas.

“As long as a customer pays, how they got their money out is not our business,” the founder of an online property brokerage who didn’t want to be name, understandably, told the FT.

“There is always a way of getting past a rule in China,” the manager of a Beijing property investment company looking to buy in the US told the FT.

This type of investment strategy has perverted homes where people live into a financialized global asset class, like stocks or bonds. With a difference: People don’t live in stocks and bonds; but they do live in homes. When homes become a global asset class, the demand is theoretically unlimited, and no construction boom can ever supply enough homes quickly enough. The whole supply-and-demand equation of the housing market falls apart.

Homes owned by foreign investors may be vacant for years and are thus not part of the actual housing stock. This contributes to the surge in prices – and hence the broader syndrome of the “affordability crisis,” and in places like San Francisco, the “Housing Crisis,” for people who’re actually trying to live in homes.

Conversely, this demand for an asset class can evaporate just as quickly – not necessarily when governments are trying to crack down as buyers see this as a winnable cat-and-mouse game, but when prices decline, and when this vacant and costly-to-maintain overseas “investment” suddenly turns into an expensive albatross. And then investors’ efforts to get out from under those costly assets can destabilize the housing markets further.

For US homes prices, it’s now a story of spikes and new flat spots. Read…  Update on the Splendid Housing Bubbles in US Cities

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  68 comments for “Why are Investors in China so Eager to Buy US Homes?

  1. Memento mori
    Mar 13, 2018 at 2:07 pm

    I think Vancouver is ground zero for chinese money laundering and corruption. They are close to destroying the social fabric in the city.
    In all probability, all the chinese money invested in real estate is crime and corruption money that was obtained through forced expropriations of chinese farmers and sheer public theft.
    It is also well established that those chinese millionaires contribute less than refugees in income taxes to the society, while keeping their wife and kids in welfare programs and other social services.
    I hope IRS will do a better job going after them than Canadian revenue agency which is a total joke. We dont need any new laws, just reinforce the existing rules and things should take care of themeselves.

    • Paulo
      Mar 13, 2018 at 3:26 pm

      Beat me to it, Momento. All Govt levels have enjoyed the increased revenues these past 10+ years from Chinese money seeking a good safe cleaning. Hopefully, the new empty home taxes will slow things up a bit. But the new Ontario Con leader will probably jump start new west coast buying spree when hope just started to settle in. :-)

      In my little red-neck of the woods on north Vancouver Island houses are selling big time this spring, often in just a few days. The buyers are of two types; young families looking for an affordable home and willing to commute an hour to work into Campbell River, or folks who have just cashed out in major cities and are looking to buy into rural paradise. The city folks are buying the expensive places with property attached.

      My wife and I always chuckle at the latter group. They move in and expect a little coffee bistro, better shopping instead of none, and always always talk about increasing tourism and ‘growth’ opportunities. (Why do they move here? Why?) They usually move on in a few years and move closer to_________ (a hospital, shopping) etc. Everyone is glad to see them go. You cannot believe the visible learning curve when they discover it wasn’t what they thought it was going to be like. I have seen them depart, bitter.

      Chinese don’t buy here, just refugees from their buying pressure. There are always rumours they are going to be buying up Uclulet and building resorts for Chinese, using Chinese labour. But I am pretty sure they never will. It seems Chinese like buying into major centres, only.

    • A. Soprano
      Mar 14, 2018 at 1:55 pm

      How is it money laundering? That makes it sound as if Chinese ppl accumulated their wealth by illicit means. They’re just people making an investment and using the tools available at their disposal..

  2. George
    Mar 13, 2018 at 2:24 pm

    “And $50,000 doesn’t buy a home anywhere in the coastal areas of the US, where Chinese buyers like to buy. ”

    Very important point. In my metro area I have seen a large influx of Chinese since 2013. Homes go between 500K-1000K.

    You didn’t state how they move the other $450,000 or so out! Any info would be helpful.

    Thank You

    • Wisdom Seeker
      Mar 13, 2018 at 5:25 pm

      Even without breaking the regulations it’s possible for a lot of Chinese to send enough funds here to buy expensive homes.

      (1) Friends and Family pooling $50,000 apiece would be one option. This is quite common even within China.

      (2) $50,000 per year for several years is the other option. If you start in December and finish in January, that’s really $100,000 in 2 months. Get a family working together (2 parents, 2 grandparents, maybe an adult child or two) and you can have $600,000 in 2 months without doing any real work.

      (3) If you have a friendly lender in the U.S. (with, say, a branch in China), you only need the downpayment. They can move the rest of the money in good time.

      P.S. It’s also possible to buy smaller houses in Middle America for under $200,000, as an initial parking spot for the money, and then upgrade every couple of years as more money flows through.

      • van_down_by_river
        Mar 13, 2018 at 8:28 pm

        Moving $50,000 per year, every year, out of China can’t work if housing costs are going up $100,000+ every year.

        They must be using a shell company that acts as a facilitator. Like an investment firm that allows you to control ownership of specific properties – who knows.

        Now that housing is too expensive to rent or own here in Seattle (I make only 94,000 so obviously I don’t speak for everyone – only wage earners) living in a van or other auto is the obvious solution. My job pays for gym membership where I shower and groom every morning before work. I have everything I need and modern America has become more about survival then thriving so I’m achieving par for the course.

        An added benefit of van living is I can park in very nice affluent areas with good views (when I’m pressed for time I just go to Walmart though). I don’t care anymore about looking sketchy. I have had the cops called on me several times and I just tell them I live in my van and I will be sleeping overnight where I’m parked. It’s not against the law to park your car on the street overnight and it’s not illegal to be in your vehicle. If more houses are bought as investments by foreign buyers and sit vacant it will give me nicer places to park with no one to call the cops to hassle me.

        Let the Chinese buy everything, then institute a national property tax and let them pay all of our taxes (I pay no property taxes!!! They wanna screw me – I screw them right back)

        • ZeroBrain
          Mar 14, 2018 at 6:12 am

          I used to contemplate (not very seriously) doing the same – buying a van or moving truck and skipping out on rent. But it didn’t seem worth it when a shared living situation with running water, a toilet, space, and some *quiet* can be had for less than $1k a month.

          I know prices are out of whack in Seattle, but your “solution” sure seems more like a personal choice to a non-existent problem, given your salary. The $12k in rent isn’t even the largest slice of your expense-pie (taxes is the lion’s share, right?).

          Living in a van makes you a social pariah in many people’s eyes and would torpedo 99% of potential relationships, I imagine. Kudos on finding a way out of paying into the dysfunctional system though.

      • d
        Mar 13, 2018 at 10:53 pm

        Borrow money in china against false asset.

        Pay for solid commodity goods in china (Tires Etc) and export them. (container loads of New Tires start around 40K, and are easy to cash up, anywhere)

        Sell commodity goods in country of destination, do not repatriate proceeds of sale to china.

        Rinse repeat .

        Possibly never pay off chinese loans/s either

  3. Gee
    Mar 13, 2018 at 2:34 pm

    Here in the east coast not so small anymore town of the #1 US private university, homes are being gobbled up at well over ask price, from unseen buyers, often via pocket listings, that we locals dont even get to see. Then the home sits vacant, or perhaps with a rental sign, at an obscene rate that no one will pay. But the buyers dont care, because the capital appreciation more than makes up for the 0% yield, and with no dirty local tenants, there is less wear and tear, depreciation and maintenance expense. Plus, when their kids are old enough, they can ship them to live in the house, and get one of their friends to play pretend parent while they attend one of the best public high schools in the country. And heck, while they are at it, they may as well find an ex-bridge building company (now scoooping up educational sites, and pretending it knows how to run them) to buy up the 40 acres where a world renowned music university sits, and pretend they arent going to destroy it to build a charter school or similar for all the people that are soon to be coming to the area from China. #winning

    • ru82
      Mar 13, 2018 at 8:40 pm

      Yep…..and all those taxes you and your neighbors paid to make that a great public high school costs next to nothing for the kids when they show up.

  4. MC01
    Mar 13, 2018 at 2:38 pm

    There’s one thing I hope you people would help me understand.

    In most if not all countries, properties taxes are levied according to home values and on top of that taxes and junk fees tend to go up if you are not a resident. You can leave a house to deteriorate (at least until the neighbors start pestering local authorities) after buying it but you cannot dodge property taxes and junk fees.
    Which can be pretty substantial: I remember what we were paying in Fort Lauderdale and San Diego. My typical reaction was “Ouch!”.

    For billionaires this is not an issue, nor for those living at least a few months per year in their “investments”, but how does the average Chinese “absentee landlord” deal with it? Does he wire a few grands every year to an agency in the US or Australia which will pay taxes and fees for him? Does he use those informal networks Chinese immigrants are notorious for? Or has he found some way to avoid paying taxes and not getting into troubles for them?


    • Paulo
      Mar 13, 2018 at 3:37 pm

      What has been on the news about Vancouver luxury heritage homes, (that no one else can afford to buy) is that new owners are pleased enough to see them sit empty and deteriorate. However, a few weeks ago someone lit one up and it was damaged by fire. Instead of being allowed to tear it down and building a lot-absorbing modern monstrosity the joke is on them. They are now forced to restore it back to heritage standards.

      (two posts. I’m done. Cheers.)

      There will be a backlash that will change local Govt. Of course this is dependent on whether or not a new Govt can operate without the increased taxation that new buyers bring. Plus, is there payoffs? Who knows? Cash flows under the table better than over in most of the World.

  5. Mike G
    Mar 13, 2018 at 2:50 pm

    Chinese students at my local college drive a ridiculous number of very expensive European cars. I find it hard to believe that their families are all so rich that buying a Maserati for their kid to drive while he goes to school in the US is no big deal, so I suspect there is a money laundering/capital flight angle.

    • Patrick
      Mar 13, 2018 at 3:10 pm

      Definitely ! When I was in college a few years back I knew several international Chinese students who had Ferrari’s and at least 2 with a Lamborghini. The rest had either a loaded Audi Sedan, a loaded BMW sedan, or a Maserati. They’d casually drive these around campus in the city(Boston)

    • JB
      Mar 13, 2018 at 6:33 pm

      Mike G: not only do the chinese like US real estate , they like sending their kids to American schools – 350,000 enrolled 2016


  6. Mike T
    Mar 13, 2018 at 3:04 pm

    They are just recycling the millions that we here in the US have stupidly “invested” in the multitude of crooked Chinese companies that IPO’d and listed on the NYSE and other exchanges here. Most, including the largest of them, are nothing more than empty shell companies registered in the likes of the BVI’s and Cayman Islands.

    Alibaba is the largest fraud since Enron!. Don’t believe me then read about it on this website: https://deep-throat-ipo.blogspot.com/

    One thing though the Chinese love owning property….when they stop buying watch out.

    • DeepThroatIPO
      Mar 14, 2018 at 11:22 am

      Thanks for the mention Mike T……by Market Cap Alibaba is about 10x the exposure Enron was….if you paint with a broad brush…..the Market Cap of US listed China ADRs is US$2.3 Trillion right now……180 companies remaining out of the original 600 listings…..the missing 420 businesses have simply “gone dark” or merged off the exchange……in almost all cases, taking US Shareholder money with them.

  7. Patrick
    Mar 13, 2018 at 3:07 pm

    No doubt the Chinese are purchasing all the real estate in Boston, San Francisco, New York, Toronto, Vancouver etc. and its causing( and will continue to cause) a mass exodus out of those cities AND/ OR a continuation of a massive debt binge by W2 workers trying to buy a home( i.e. spending $800k on a 1BR apt ) . As a millennial who used to live in Boston I recently fled South when I realized the prospect of owning a home had diminished to about 0%. Many newcomers like myself here realized the same… its a crying shame

    • van_down_by_river
      Mar 13, 2018 at 8:54 pm

      Why does your generation stay? If I was just starting out I would look for a Greener pastures (New Zealand, Chile, Colombia, Mexico, Malta…). Travel and explore other countries maybe find a sweetheart in a foreign land and make it your home.

      This country wants to use you as a wage slave. Wealthy boomers are laughing all the way to the bank. Don’t be a slave or a plow horse, take off your yoke and start an exodus – you owe them nothing.

      • Frederick
        Mar 14, 2018 at 3:45 am

        That’s Exactly what I did thanks however I’m a semi wealthy Boomer myself Good advice though I fully endorse it

        • interesting
          Mar 14, 2018 at 2:56 pm

          wow, you must have cashed in and been lucky. Your semi wealth sure didn’t come from your ability at grammar.

  8. Rates
    Mar 13, 2018 at 3:15 pm

    And the Yuan keeps drifting higher.

    The Fed’s probably sending dollars to China.

  9. Nicko2
    Mar 13, 2018 at 3:16 pm

    In principle I see no problem with this, higher property prices lead to more tax revenue for local municipalities. Capital flight from China is more of a pressing issue for THEIR ruling politburo, as it impacts on their long term economic growth. However, a foreign buyers tax is never a bad idea. We’re in the post-global era, cities around the world will continue competing for hot money.

  10. RoseN
    Mar 13, 2018 at 3:34 pm

    Other countries either ban foreign home purchases outright or slap a hefty tax on the transaction. Why don’t we do that in the U.S.? Is it considered un-American? Anti-capitalistic?

    A generation of Americans is getting set up for financial hardship because they’re buying property at ridiculously inflated prices. We’re supposed to have 6 months of living expenses in the bank and also save for retirement without the help of a pension.

    And to think that some of this foreign money stems from ill-begotten gains!

    • alex in san jose AKA digital Detroit
      Mar 13, 2018 at 5:22 pm

      I’m all for an outright ban or a tax of the value of the home, yearly.

      I’m also for: for every H1B worker, that worker must be paid the full market price for his job position PLUS, an American must be hired and paid the same. I don’t care of all the American does is play Flight Simulator all day, you are required to hire him or her. If that H1B is that valuable, you’ll do this. I have a feeling most H1B’s are barely worth the $20k or $30k they’re paid.

      • mjcarne
        Mar 13, 2018 at 10:21 pm

        Alex, my wife works in IT recruiting for a large US bank. NONE of the H1-Bs she hires make less than $95k per year – the average is $150k. I dunno who’s getting them for $20-$30k.

      • Mar 13, 2018 at 10:47 pm


        To bring someone into the US on an H1B visa, a US company must pay a qualifying worker a minimum salary of $60,000 per year. That’s the current requirement.

        There are new regulations being discussed that would lift the minimum salary requirement to $130,000 per year.

        • alex in san jose AKA digital Detroit
          Mar 14, 2018 at 7:43 pm

          This all sounds good.

          There are a lot of cases locally here, where companies bring in engineers or “engineers” from India, pay them Indian wages and provide them free dorms and vegetarian food, and occasionally someone forgets to pay their bribes and the story makes the news.

          So there needs to be a crackdown on this sort of thing and hefty bounties for anyone who knows about this and narks.

          A minimum H1B wage of $130k is a good idea but I’ll still stand by there also being a requirement to hire an American at the same wage the H1B gets, even if all they do is sit around and play pinochle all day.

        • Mar 15, 2018 at 12:16 am

          There is a sort of a crackdown on H1b fraud of the type you describe, but it’s probably not enough. For your entertainment, Google > h1b visa fraud.

    • Wisdom Seeker
      Mar 13, 2018 at 5:27 pm

      You should look at where, say, the Roosevelt family got their gains. A lot of the 19th century American plutocracy got rich off trading with China!

    • van_down_by_river
      Mar 13, 2018 at 9:08 pm

      Housing prices have not been inflated!!! Have you apparently have not heard about hedonics? Ben Bernanke could teach you a thing or two, don’t you know houses are so much better then years past that we actually have housing deflation. Security cameras, electric locks, fire detectors… all these new innovations have made houses so much better then those old houses from the 1990’s that prices are actually too low.

      Only the Fed can save us by continuing to devalue the currency, they have acted bravely but there is still deflation hiding behind every bush. Jerry Powell must be vigilant and stamp out the deflation scourge, Ben did everything he could but there is only so much one man could do even if he is as valiant and brave (some might even say “courageous”) as ol Ben the Bankie.

    • jz
      Mar 13, 2018 at 10:36 pm

      Let me think. The Chinese has traded 30 years of real products for those 3trillion USD paper in their hands. For two generations the Americans have enjoyed low price walmart goods, apparels and shoes. So now the Chinese wants to buy some companies. Trump says, NO, no, it is NOT allowed. Buy some US houses? You say, NO, no, we are going to ban you from doing it. Then what do they need all of those USD paper for? Right, they can use it to buy oil from middle east because US made sure only USD is used for oil. But wait, I heard they are starting to trade oil for yuan in Shang hai soon. So if buying US assets is banned, why IN THE WORLD would any one wants to TRADE with US?!

      • interesting
        Mar 14, 2018 at 3:00 pm

        “3trillion USD paper”

        fscepalm……not all those reserves are US $$$$$$$$$$.

        does anyone even do any research any longer? Or are any and all talking points just fact now?

        • JZ
          Mar 14, 2018 at 4:59 pm

          I do NOT need to weigh a person to tell he or she is fat. You can argue those reserves are US dollar denominated or other currencies, or those are cash paper or bond paper. The truth is, they sold more goods than they buy every single year and they put the reserves for either manipulating exchange rate or buying foreign assets. My point is, they want US assets more than they want us goods. Trump blocks them buying productive corporation assets, and people here talking about banning them from buying real estate. But people here never talked about how they have consumed low prices Chinese goods for two generations. This is my point.

        • d
          Mar 14, 2018 at 9:28 pm

          “Trump blocks them buying productive corporation assets, and people here talking about banning them from buying real estate. But people here never talked about how they have consumed low prices Chinese goods for two generations. This is my point.”

          Real Estate, Corporation’s, HARD PRODUCTIVE ASSETS.

          Consumer goods, Just that. Consumed, or discarded after use.

          You are comparing apples and oranges.

          Then trying to make a pro chinese/Anti American case of it.

        • Wisdom Seeker
          Mar 16, 2018 at 11:02 am

          JZ, “The truth is, they sold more goods than they buy every single year”

          That’s because they put enormous tariffs on foreign goods, making it cost 3x as much to buy an American type product as a Chinese one, over there in China. And don’t get me started on the regulatory arbitrage in which China agrees to pollute their own country (pay even more, in other words) in order to avoid making their own products cost any more than they do.

          The U.S. could be making a lot more high-quality products, at competitive prices, if we were allowed to compete.

          If the trade laws were fair there wouldn’t be such a trade deficit.

  11. andy
    Mar 13, 2018 at 4:00 pm

    As Alibaba, Tencent, and other Chinese dot coms (priced in hundreds of billions of dollars) make their way into your 401K/IRA, your dollars go to pay for Chinese owned real estate next door.

    • Mike T
      Mar 13, 2018 at 4:02 pm


      • alex in san jose AKA digital Detroit
        Mar 13, 2018 at 5:23 pm

        Well, that’s rather horrifying …

        Are there funds that invest in only American companies?

        • andy
          Mar 13, 2018 at 7:23 pm

          Yes, any S&P500 fund invests the largest portion in the US based dot coms (priced in hundreds of billions of dollars). Facebook, Google, Amazon, etc..

    • MCH
      Mar 13, 2018 at 6:32 pm

      Unless you’re living in the Hamptons, or have one of the luxury coops or penthouses in NY. I seriously doubt you’re living to a Chinese guy who got filthy rich off of BABA or TCEHY or BIDU.

  12. WES
    Mar 13, 2018 at 4:19 pm

    From my travels working around the world, it was interesting to note what the locals did with their money. In many countries the prime desire was to get their money out of the country!

    I would walk into any local merchant, present my US bank cheque book, always leaving the “pay to” space blank, obtain going rate black market rates for local currency with barely a word spoken all in less than five minutes! That was how desperate the locals were to exchange worthless local currency for hard currency! Later my US bank would send me the cashed cheques and all of them were stamped on the back by either the Bank of Geneva or Zurich!

    Often there was no desire by locals to invest in their own country because if one created a successful business then some one in the government would demand bribes or just seize your business.

    My observation was if the locals won’t invest in their own country neither should you!

  13. Mike Ra
    Mar 13, 2018 at 4:39 pm

    Some of this nonsense is not going to end well. I can easily conjure scenarios where rich foreigners with questionable loyalty or roots in this country are not encouraged to stay in a less than nice manner.

  14. c smith
    Mar 13, 2018 at 4:40 pm

    “…and when this vacant and costly-to-maintain overseas “investment” suddenly turns into an expensive albatross.” Given the recent changes in China wrt President Xi Jinping becoming president “for life”, I would think the opposite may become more likely. People will want to actually emigrate to the U.S. in greater numbers to live in these “albatrosses”.

  15. Nodak 65
    Mar 13, 2018 at 4:54 pm

    I must post this interesting story from my international travel last week while flying i struck up a conversation with a young chinese student who was attending school on a student visa at a major SEC university. His parents were both professors back in china. Now this guy was asking me a lot of questions but i finally pushed back and said time for you to answer some. Through observation it came out he had status on the said airline, so i asked how a student on a visa could afford to travel so often? turns out through some prying he was heavily involved in futures trading! He was also miffed that he could not get a green card! So my thinking through our conversation and his travels is that he was traveling to find a place he could get long term citizenship and not have to go home to china! His student visa was expiring soon!

  16. Drango
    Mar 13, 2018 at 5:10 pm

    Most of these Chinese purchasers are probably not average citizens. Only the offspring of communist party members would flaunt their wealth without fear of being caught. These are the “princelings” so hated by the average Chinese citizen. If there ever is a revolution in China, returning these sons of kleptocracy to face a people’s court would probably be greatly appreciated.

  17. Wisdom Seeker
    Mar 13, 2018 at 5:38 pm

    Wolf, I usually love your writing, but I feel like you’re making a significant fundamental error in language in this part of this one article:

    > This type of investment strategy has perverted homes where people
    > live into a financialized global asset class, like stocks or bonds.
    > With a difference: People don’t live in stocks and bonds; but they
    > do live in homes. When homes become a global asset class, the
    > demand is theoretically unlimited, and no construction boom can ever
    > supply enough homes quickly enough. The whole supply-and-demand
    > equation of the housing market falls apart.

    The error is in conflating house with home. The financial asset is the house, not the home. Substitute “house” for “home” and strip out the “where people live” and this argument makes more sense.

    To a construction worker, a house is just another structure. Only once someone lives there does a house become a home. But it’s the house that’s the financial asset, and it’s what the absentee buyers want to own. The “home”-ness of a seller’s house has no value to a buyer. Home-ness is what the buyer adds on their own when they move into the house.

    Put another way, if the houses were being bought to live in, as a home, there wouldn’t be a market imbalance.

    What I think you should have written is:

    “This type of investment strategy has perverted houses, which ought
    to be homes where people live, into a financialized global asset class, like stocks, bonds, gold or silver, or office buildings. With a difference: People don’t live in stocks and bonds, and they can’t eat gold, but they often do live in houses. When houses, including people’s homes, become a global speculative asset class for absentee owners, the demand is theoretically unlimited, and no construction boom can ever supply enough homes quickly enough. The whole supply-and-demand balance of the housing market falls apart when houses are bought as if they were gold bars, to be owned but never used.

    • Mar 13, 2018 at 7:19 pm

      What about condos, which are a big favorite here?

      • MCH
        Mar 13, 2018 at 7:53 pm

        When you can’t afford a $5M house in Los Altos or Palo Alto, you can still afford a $1M condo built in the 80s in Cupertino or Sunnyvale.

      • WES
        Mar 13, 2018 at 9:01 pm


        From conversations with my brother who has worked in Shanghai many Chinese have made millions by buying new apartments and holding onto them. (Note there are no property taxes! If monthly condo fees I can’t say. So carrying costs could be lower.)

        The part I found rather strange was that these new apartments are apparently bought unfinished! All you get are bare cement walls!

        So if you want to live in the apartment or rent it, first you have to finish it!

        That fact, if true, might help explain why so many Chinese buy houses/condos here and leave them unoccupied for years!

        • chris Hauser
          Mar 13, 2018 at 9:17 pm

          many of this have never been furbished, they are a store of value. if they are lived in, most chinese don’t want what someone has lived in…….

          as to property tax in china, given it would only be 1% of value or so, what’s the objection? but there is huge objection.

          figure on that……

        • Mike G
          Mar 13, 2018 at 10:17 pm

          Down the street from a relative of mine in Silicon Valley is a $3m house owned by mainland Chinese who have not set foot in the place for several years.

      • Wisdom Seeker
        Mar 16, 2018 at 11:04 am

        Condo is still housing.

        Regardless, it ain’t a home until someone lives in it.

  18. MCH
    Mar 13, 2018 at 6:29 pm

    I’m actually stunned by the collective comments here. It seems pretty apparent that most people here don’t appreciate the earning power that is available in China through legal means.

    It’s not all laundered money, there is a good amount of the upper middle class in China where the earning powers are not substantially different from the US. The only difference is in terms of numbers of those people, give that China has almost 4x the population, there is a larger population than you would think who would look to put their money in safe haven. And for better or worse, US and Canada is safer than most countries.

    Besides, the really filthy rich are buying $20M penthouses in NY, London, etc, those would’ve been outside of whatever pricing range we’re discussing anyway.

    Now I’m not saying there isn’t laundered money here, but I would suspect that at least some of money involved is not “dirty” but just been pulled out of harm’s way, read the glorious government of comrade Xi.

    • Memento mori
      Mar 13, 2018 at 7:07 pm

      Having lived and worked in china and having some knowledge of the subject, I can confirm to you that no chinese person can set up and run a business if not connected to the communist party by some subterfuge. As such, the party gives, the party takes, hence the number of chinese citizens coming to the US to buy real estate with one main objective, to get that money out of reach from the party, in case they fall out of favor. China is an accident waitting to happen, most of those people voting with their feet know smth we dont.

      • MCH
        Mar 13, 2018 at 7:50 pm

        And you’re absolutely right on all counts. But you could for example make decent money working for a multinational, and many Chinese fortunes have been built on the corpses of multinationals like Nortel, Google, Uber, (no, the last two aren’t dead, except in China), or corpses in waiting (Apple, Walmart)

        You can actually make enough money that way to want to get some of it out of harms way. And would you or anyone here actually begrudge people who want to do that especially if they earned their money without been corrupt to the core?

        • Memento mori
          Mar 13, 2018 at 10:49 pm

          yep, but still it will take years working for a multinational company to save 3million in cash to buy that tear down in Vancouver. Even if you manage to dodge all income tax payments.

  19. Rates
    Mar 13, 2018 at 6:55 pm

    You know the big joke is on these guys in the end.

    The Chinese, living overseas still have delusions about Murica. In fact the Chinese word for America is 美国, which means “beautiful country”.

    When this country blows apart along Red/Blue, opioid/non-opioid or what have you, we’ll show them the REAL value of their investments.

  20. WES
    Mar 13, 2018 at 6:59 pm

    Folks buying houses in safe countries like the US, Canada, UK, Australia, New Zealand, etc. is nothing new. For these folks their countries all share a common trait. Non-democratic forms of governments where wealth is routinely confiscated by governments.

    Today even the so called democratic governments like the US increasingly are confiscating private property at alarming rates.

    Many wealthy Americans are doing what they can to protect themselves from their own government by buying foreign homes, obtaining second or third country passports, and placing as much of their wealth in foreign countries as possible. Notice how much effort the US government has gone to to prevent Americans from doing this. If you are an American, good luck trying to open a foreign bank account anywhere in the world now if you only have a US passport!

    Basically many wealthy people want to ensure they can live in a safe country, have some of their wealth in a second country, and their business in a third country, so no one government can get all three at once as easy pickings!

    • Rates
      Mar 13, 2018 at 7:04 pm

      I’ve posted this before: https://www.theguardian.com/news/2018/feb/15/why-silicon-valley-billionaires-are-prepping-for-the-apocalypse-in-new-zealand

      As I said in my post above. Rich Americans are planning to flee overseas. The joke will be on the Chinese. These “investors” will lose their shirt …. along with regular Americans.

      • Frank
        Mar 13, 2018 at 9:59 pm

        Well New Zealand is blocking Americans and other overseas investors from buying existing homes being sold to foreigners without explicit government approval,and they are mad.

        “The proposed law, which the government says will bring New Zealand into line with neighboring Australia, will classify residential land as “sensitive,” meaning non-residents or non-citizens can’t purchase existing dwellings without the consent of the Overseas Investment Office. While it allows non-resident foreigners to invest in new construction, it forces them to sell once the homes are built”.


        • Rates
          Mar 13, 2018 at 10:39 pm

          Some of the Americans would love it. If you are Peter Thiel, you don’t want every monkey in the world no matter how rich they are to crowd New Zealand.

    • Kent
      Mar 13, 2018 at 7:50 pm

      I just bought a piso in Madrid. I didn’t have any issues. What did I miss?

  21. raxadian
    Mar 13, 2018 at 9:57 pm

    Some cities that are tourist spots have heavy fines if houses and apartments there aren’t being used for years. Big US cities like New York could do the same.

  22. Stan
    Mar 13, 2018 at 11:50 pm

    As a San Diego Broker, I have had many listings with Chinese buyers. Most are still in China, using Proxy buyers. Offers are all cash, higher than list and fast escrows. They are desperate to launder that Chinese money into Cash Flow. When they do come to the U.S., they will most likely arrive in Vancouver, because Canada does not require a Visa. From there, they will apply for a EB-5 Visa and buy their way into residency in the U.S. Already, pregnant Chinese women come into the U.S. to have anchor babies. America – what a country!

  23. SimplyPut7
    Mar 14, 2018 at 6:19 am

    Investing in US housing is kind of like Bitcoin, no one cares about the asset or the local people that it impacts, as long as it keeps going up in value really fast.

    When the home price appreciation starts to decrease, and when investors realize there are other assets to invest in that don’t have as much risk and have better returns than investing in a handful of major cities in the US, the investors will be gone.

    And will sell their investments at a loss, like in Canada to avoid losing any more money than they already have, before the market spirals out of control like most housing busts.

  24. mean chicken
    Mar 14, 2018 at 12:16 pm

    One perhaps big difference concerning a foreigner owning property in the US is since they’re not citizens, thus they don’t pay federal income taxes like US citizens are required to do.

    Imagine legally owning a piece of the US but without that tax liability.

  25. raxadian
    Mar 14, 2018 at 12:36 pm

    Sadly this is not like bitcoin. Bitcoin doesn’t allow you easy access to a US green card unless you do it the millionarie way.

    Buying a house or apartment in the US is a way out of China, not just an investment.

    There needs to be both a tax reform and a green card reform in the US to deal with this. Every home owner should pay the same taxes that other home owners, even if said others home owners are not US citizens or living in the US.

    Or this bubble won’t pop any time soon.

    And China going the “president for life” route is not doing anything to deal with wealthy Chinese citizens fears.

    If anything the fact they go after wealthy company owners and have even executed some of them is making things worse.

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